The Company Act 2006: Promoting Corporate Governance and Protecting Minority Shareholders - Assignment Example

Download file to see previous pages


The intention of this study is the UK Company Act of 2006. Its major purposes are to protect shareholder rights, to ensure directors’ responsibility, to promote corporate governance – all of which will, in the end, facilitate a better policy environment for commerce and trade. The Companies Act – previously known as the Company Law Reform Bill -- received its second reading in the House of Lords on January 11, 2006, and received Royal Assent on November 8, 2006. As stated by Lord Sainsbury, Parliamentary Under-Secretary of State at DTI, the purpose of the Act is to “to constantly update company law in response to changes in the way companies do business”. According to Lord Sainsbury, the Act has four key objectives:
• Enhancing shareholder engagement and a long-term investment culture
• Ensuring better regulation and a “think small first” approach
• Making it easier to set up and run a company
• Providing flexibility for the future.
It cannot be gainsaid that minority shareholders occupy a vulnerable and precarious position in the hierarchy of the corporate structure. The dilemma that of how one is to go about preserving their rights and granting them protections is akin to the dilemma that faces a democratic polity: while the will of the majority is a foremost consideration and indeed is the most equitable way to resolve disputes and frame policies, there is an equally compelling and equally valid need to have regard for the interests of those in the minority – marginalized sectors who face constant threat of being disenfranchised in a system founded on justice and fairness.

The part of the Act that is most relevant to shareholder engagement is Part 11, which provides shareholders with, as stated in paragraph 480 of the Explanatory Notes, “a new procedure for bringing such an action which set down criteria for the court distilled from the Foss v Harbottle jurisprudence". 2 The Act essentially expands the existing derivative action, and allows shareholders to sue the directors for a wider range of breaches, namely in respect of an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust. Another significant change is that a shareholder who has brought proceedings must apply to court for permission to continue the claim. The Act also contains restrictive provisions on the issue of ratification by the majority. Members who ...Download file to see next pagesRead More